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AG Coakley Calls for Investigation into $18 Million Legal Tab Passed Down to New England Gas Company Ratepayers

Executive Of Parent Company Also Partner At Law Firm That Was Hired And Paid $18 Million In Legal Fees

BOSTON - Today, Attorney General Martha Coakley's Office asked the Department of Public Utilities (DPU) to investigate New England Gas Company's allegedly improper collection of $18 million in legal fees from Massachusetts customers.

New England Gas Company (NEGC) provides natural gas distribution service to about 54,000 Massachusetts customers and is a division of Southern Union Company (Southern Union), one of the nation's largest diversified natural gas companies.

Through its own review process, the AG's Office discovered that a senior executive of Southern Union is also a partner at the New York law firm that was hired by NEGC to perform $18 million in work in connection with a single lawsuit. Despite this apparent conflict of interest, the executive continued to receive compensation from the firm.

"Our investigation revealed that Massachusetts customers paid millions in legal fees to an outside firm with direct ties to a Southern Union executive," AG Coakley said. "This appears to be a clear conflict of interest, and we are asking the Department to investigate this further to ensure that ratepayers are properly protected."

Pursuant to a settlement agreement approved by the DPU in 1990, Massachusetts gas companies can recover from their customers certain costs related to the clean-up of toxic sites contaminated by old facilities and the legal claims arising out of such pollution. The Attorney General's Office is requesting that the DPU investigate whether NEGC collected certain other legal fees to which it is not entitled.

Since 2003, NEGC has sought to collect more than $20 million dollars in legal fees to litigate claims related to contaminated gas manufacturing sites. A significant portion of these fees were incurred defending Texas-based Southern Union from a class action lawsuit brought by residents of Tiverton, Rhode Island, regarding property contaminated by a predecessor of NEGC. In 2009, Southern Union settled this claim for $11.5 million, an amount that will also be collected from NEGC's ratepayers.

More than $18 million in legal fees from this matter were funneled to Kasowitz, Torres, Benson & Friedman, a New York-based law firm (the "Kasowitz Firm") that still employs Southern Union's President, Chief Operating Officer and Vice-Chairman of its Board of Directors, Eric D. Herschmann. Under this arrangement, the more legal fees charged by the Kasowitz Firm and collected from NEGC's Massachusetts customers, the more Mr. Herschmann stood to gain monetarily.

Mr. Herschmann was not the only Southern Union officer employed by an outside law firm. In its filing, the Attorney General's Office also argues that the DPU should examine legal fees incurred by a Texas-based law firm that employs Southern Union's Chief Ethics Officer.

The Attorney General's Office of Ratepayer Advocacy serves as the utility ratepayer advocate and is authorized to intervene in administrative and judicial proceedings on behalf of consumers in connection with any matter involving the rates, charges, prices or tariffs of any gas company doing business in the Commonwealth.

Assistant Attorney General R.J. Ritchie of the Attorney General's Office of Ratepayer Advocacy handled this matter.